The estate tax calculator allows you to estimate federal estate tax for residences in US according to assets and the liabilities. This calculator makes use of tax rate and exemptions according to the Tax Act that is currently implemented in the US. However, there are states that impose estate tax with their own state version known as inheritance or estate tax.
When someone dies, their funds and properties are simply transferred to their heirs. However, the government charges tax on that property which is called Estate Tax. In United States, estate tax is a part of Unified Gift and Estate Tax system. Gift tax is the other part of this system which imposes tax on the property transfers when someone is alive. Gift tax makes sure that avoidance of estate tax is prevented in case if the person likes to give his/her estate away just before he/she dies.
The law of United States gives basic exclusion from Estate Tax i.e. $5.45 million a person. Once this limit is crossed, a 40% tax is applied on the estates. However, most of the people who even keep funds beyond this amount do not have to pay any estate tax as stated by Urban-Bookings Tax Policy Center. Among 3780 estates to which any tax is owed, the average effective tax rate stands at 16.6 percent.
The reason why this effective rate is low is that the owed amount only applies to the part of an estate which is above the exclusion amount. The tax planners can also easily help wealthy people to protect their estate's taxable part. For instance, parents sell some of their assets at discounted rates to their children and collect tax hit as a result. Trust funds are also used for avoiding the estate taxes. In fact, there are quite a few loopholes that can be used for avoiding estate taxes.
Though it is quite a simple estate tax calculator, it requires you to enter quite a few values to get the result. To put it simply, the calculator requires you to provide the monetary value for all your assets and liabilities and then hit the calculate button. The result shows you the net taxable estate that you have and also the federal estate tax that you will incur for a given year.
The values that you have to provide to the estate tax calculator in assets include your residence as well as any other real estate. Then you have to enter stocks, bonds and any other investments that you might have made. Next is your CDs, savings and the balance in your checking account. Then there is value of your vehicles, boats and any other properties like these two. After that you have to enter the value of your retirement plans, life insurance benefits and any other assets.
When it comes to liabilities, you start by entering the value for your debts including loan, mortgages, and credit cards. Next, the estate tax calculator requires you to enter value for your administration, funeral and claims expenses. Then you have charitable contributions alongside any estate taxes or state inheritance.
Once you have entered all these values, you just have to hit the calculate button and the estate tax calculator performs the calculations for you to give your net taxable estate and the estate tax that you will have to pay for the year. The results are accurate and you can easily rely on the information being presented to you by this calculator.